U.S. Michigan Consumer Sentiment Index Increases to 78.3

By Elizabeth Dexheimer -
Sep 28, 2012

Confidence among U.S. consumers
climbed in September to a four-month high as Americans became
less pessimistic about the outlook for the economy.

The Thomson Reuters/University of Michigan final sentiment
index rose to 78.3 this month from 74.3 in August. Economists
projected 79 for the measure after a preliminary September
reading of 79.2, according to the Bloomberg survey median.

Rising property values, higher stock prices and a
stabilization in the cost of gasoline may be combining to lift
sentiment. At the same time, unemployment stuck above 8 percent
and stagnant incomes are restraints for households, whose
spending makes up about 70 percent of the economy.

“The wealth effect created by rising home prices can lift
consumer spending on other big ticket items,” Steven Ricchiuto,
chief economist at Mizuho Securities USA Inc., said in a
research note on Sept. 25. “Households believe that the economy
is getting better and will continue to do so.”

A separate report today showed business activity
unexpectedly contracted in September for the first time in three
years, adding to signs manufacturing will contribute less to the
expansion. The Institute for Supply Management-Chicago Inc. said
today its business barometer fell 49.7 this month from 53 in
August. A reading of 50 is the dividing line between expansion
and contraction.

Stocks fell after the report, with the Standard & Poor’s
500 Index dropping 0.5 percent to 1,439.36 at 10:06 a.m. in New
York.

Survey Estimates

Estimates of the 66 economists surveyed by Bloomberg for
September consumer sentiment ranged from 75 to 81.5. The index
averaged 64.2 during the 18-month recession that ended in June
2009. In the five years leading up to the recession, the gauge
averaged 89.

A report from the Commerce Department today showed consumer
spending barely rose in August after adjusting for inflation.
Household purchases increased 0.5 percent, matching the median
estimate of economists surveyed by Bloomberg and the biggest
gain since February. The rise mainly reflected a 0.4 percent
jump in prices, the biggest since March 2011, leaving so-called
real spending up 0.1 percent.

Disposable income, or the money left over after taxes,
dropped 0.3 percent after adjusting for inflation, the weakest
reading since November, the Commerce Department said. It rose
0.1 percent in the prior month.

Current Conditions

The Michigan survey’s index of current conditions, which
reflects Americans’ perceptions of their financial situation and
whether they consider it a good time to buy big-ticket items
like cars, fell to 85.7 from 88.7 the prior month. The
preliminary September reading was 88.3.

The gauge of consumer expectations six months from now,
which more closely projects the direction of consumer spending,
increased to 73.5 from 65.1 in August. The preliminary reading
for this month was 73.4.

The Commerce Department said yesterday that household
purchases rose at a 1.5 percent annual pace in the second
quarter, the slowest in a year after a previously reported 1.7
gain.

The Michigan sentiment figure is in line with other
indicators. The Conference Board’s sentiment index increased to
the highest level in seven months, according to figures released
Sept. 25. And the Bloomberg Consumer Comfort Index rose last
week to the highest level since July.

Housing Market

The improving housing market, cheaper gasoline and rising
stock prices may be making Americans feel less pessimistic about
their financial situation. The S&P 500 Index was up 15.1 percent
for the year through yesterday. It reached its highest level
since December 2007 in the week ended Sept. 14.

“It’s probably the equity market in particular, that
people are feeling a little better about things than they were
three months ago,” said Jim O’Sullivan, chief U.S. economist
for High Frequency Economics Ltd. in Valhalla, New York. “It’s
encouraging from the perspective that at least we’re not
weakening. If anything, I think the numbers are going to look a
little better over the next month or two.”

The S&P/Case-Shiller index of home values in 20 cities
climbed 1.2 percent in July from the same month in 2011, the
biggest 12-month advance since August 2010, a report from the
group showed on Sept. 25.

“Consumer confidence is improving and consumers don’t want
to miss current prices and interest rates,” Stuart Miller,
chief executive officer of Miami, Florida-based Lennar Corp.,
the third-largest U.S. homebuilder by revenue, said on a Sept.
24 earnings conference call.

Gasoline Prices

Gasoline prices have declined from a five-month high of
$3.87 a gallon on Sept. 13, according to AAA, the nation’s
largest motoring organization. The average cost was $3.79
yesterday.

At the same time, the unemployment rate has exceeded 8
percent for 43 months. To help jumpstart the labor market, the
Federal Reserve announced on Sept. 13 it would buy $40 billion
of mortgage debt a month and was likely to keep its benchmark
interest rate near zero until mid-2015

Consumers in today’s confidence report said they expect an
inflation rate of 3.3 over the next 12 months, compared with 3.6
percent in the August survey. Over the next five years,
Americans expected a 2.8 percent rate of inflation.